Financial Literacy Month

They say that ‘money makes the world go round.’

While we know that money isn’t everything, it definitely plays a huge part in most of our lives.

Money has the power to influence a number of the big decisions we make, including where we choose to live, where we work, and if and when we decide to start a family.

We may not have realised it at the time, but a lot of us were first introduced to financial awareness at a young age. How many of us left our teeth under the pillow for the tooth fairy in the hope that we’d wake up in the morning to find a shiny pound coin in its place? We might have initially learned the value of working hard in exchange for cash through pocket money awarded for completing chores.

Money is all around us, so why don’t we feel comfortable discussing it?

Over the past few years, ‘money talk’ has completely dominated the news. From the post-Covid crash to rising mortgage rates, the media’s perception of the UK’s financial situation has not been particularly positive.

It’s not hard to see why many of us shy away from chatting about cash.

A 2022 survey revealed that a third of UK adults feel uncomfortable discussing money with their peers, and a further 35% stated that they felt too awkward to bring up the topic.

It’s imperative that we put an end to the stigma surrounding money.

Finances needn’t be scary, and they shouldn’t be taboo.

When it comes to mental health, we’re actively encouraged to talk. Let’s vow to do the same regarding our financial health, too.

By opening up, we are reducing the risk of isolating groups of people who may be in need of a little extra support at the moment.

• In 2022, it was estimated that 1 in 10 adults felt hopeless about their financial situation.
• 24 million adults in the UK do not feel confident managing their money.
• Only a third of those in debt receive help.
• Outside of work, financial pressure is the most common cause of stress.
• Almost 40% of people say that their financial situation worsens their existing mental health condition.
• 1 in 5 employees say their productivity is affected by financial stress.

Sometimes, we might be apprehensive about things we’re not that confident about.

Listening to money-related stories on the news can feel like playing financial bingo, with handfuls of confusing jargon thrown in.

From APRs to scams, we’ve rounded up some of the more common financial words and phrases and explained their meanings.

Credit Ratings

What is a credit rating?

Everyone is different, and so are their credit ratings.

Your credit rating is based on your credit history. Credit Reference Agencies, such as Experian, Equifax, and TransUnion, look at any previous credit accounts you have had and how you repaid them, and then use this information to calculate a score.

Having a good credit rating may improve your chance of being accepted for financial products, including credit cards, loans, and mortgages.

If you are approved for a financial product and your credit rating is considered good, you might be offered lower interest rates and a higher borrowing limit. However, you should only borrow what you need, and can comfortably afford to repay.

How can I improve my credit rating?

Improving your credit rating shouldn’t feel like an impossible task. While there are several long-term solutions to think about, you can easily make a start with some smaller changes.

• Check your credit report for errors. Things such as a misspelled address or an incorrect postcode could negatively impact your rating.
• Sign up to the electoral register – this will make it easier for potential lenders to identify you.
• Make sure your bills are paid on time.
• Be aware of any financial associations you have with other people. For example, if you share a joint account with someone who has a low credit rating, there is a chance it may affect your own.
• Try not to make multiple financial applications over a short period of time. When you apply for a product, lenders will run a ‘hard search’ on your credit file, which could be visible for up to two years. Too many hard searches can lower your rating.
• Withdrawing cash at an ATM using your credit card can have a negative effect on your credit rating.

Where can I check my credit report?

You can view and check your credit report at Experian, TransUnion or Equifax.   Equifax and TransUnion both charge monthly fees after an initial 30-day free trial - £10.95 for Equifax, and £14.99 for TransUnion. Experian offer a free service.

Credit Cards

What is a credit-building credit card?

A low credit rating isn’t necessarily based on bad credit history; it may simply mean that you have little-to-no credit history available for lenders to view. This is quite common in younger people who may not have ever paid bills or taken out a financial product before.

Those in this situation might find a credit-building credit card useful. By using the card sensibly, paying more than the minimum repayment amount each month, and keeping on top of any other credit accounts you may have, you should, over time, begin to see an improvement in your credit score.

What is the difference between a balance transfer credit card and a purchase credit card?

A balance transfer card allows you to transfer the balance of an existing credit card onto a new one. This may be a suitable option if the new credit card has a lower interest rate as this could reduce your monthly repayments.

A purchase credit card offers an initial interest-free promotional period. During this time, any purchases you make will not be charged interest. In order to benefit from a purchase credit card, you would need to pay off the balance before the interest-free period ends. Once your promotional period ends, any outstanding balance, and any further purchases you make using your card, will be charged interest.

What is the difference between a hard and a soft credit search?

When you apply for a financial product (for example, a credit card or a loan), the lender will carry out a search on your financial history to get an idea of your ‘creditworthiness.’

If you apply for a product through a credit broker, they will usually run a ‘soft search eligibility check,’ which allows them limited access to your credit file. This gives the credit broker an idea as to whether or not you may be approved for a product. If the search reveals that you have been pre-approved, you will be redirected to a suitable lender.

If you are pre-approved for a credit product, you will still need to pass a credit check by the lender, who will then take an in-depth look at your credit file. This is called a ‘hard search’ – sometimes called a ‘full search’.

Loans

What is a Personal APR?

APR is the Annual Percentage Rate. A Personal APR is the rate you receive and is based on your individual circumstances, as well as your credit report. It refers to the overall repayment amount of the loan, including interest and any fees you may be charged, such as an annual fee for a credit card account, for instance.

What does Representative APR mean?

The Representative APR is designed to give you an idea of the overall cost of borrowing, including interest. It represents the rate that 51% of borrowers will be offered.

Not everyone who applies will receive the Representative APR.

Secured loan vs unsecured loan

A secured loan is when you borrow money and secure it with an asset, known as ‘collateral.’ This could be your house or car. If you fail to make the pre-agreed monthly repayments on your secured loan, the collateral may be seized by the lender. The default rate tends to be lower on secured loans, because nobody wants to lose their car or their home if they can help it. The low default rate means that interest rates may be lower.

An unsecured loan is not attached to an asset. You are offered the loan based on your financial history. The lender has considered your application, checked your credit report, decided you are ‘creditworthy’ and made the decision to lend you the money. Your credit agreement is a contract where you agree to pay the loan back on time. There are still consequences attached to defaulting on an unsecured loan, which could include late payment fees and a decrease in your credit rating, for example.

Is there anything I should be aware of before taking out a loan?

Loans – like all financial products – require careful consideration before you sign a credit agreement.

The most important thing to think about is the cost of monthly repayments. Are you sure you can comfortably make your repayments without this affecting other areas of your life, such as your housing costs and priority bills?

Falling behind on or failing to make repayments will negatively impact your credit rating and you may be subject to additional fees.

Housing

Should I rent or buy?

This is a big topic at the moment, and there isn’t really a definite answer.

Like when we talk about savings and pensions, whether you decide to rent or buy a home is down to your personal situation.

Both buying and renting come with pros and cons and their own set of expenses. It’s all about weighing up the options to work out what suits you.

While you will generally require a large deposit to purchase a house, it might be considered a financial investment.

On the other hand, renting may be ideal if you plan to move around or travel and don’t want to be tied down. Bear in mind that renting may make it harder to save for a house deposit if this is your end goal.

Savings

How much money should I save?

How much you save should be based on your own circumstances. While it can be difficult not to beat ourselves up over how much money we have or haven’t saved, or compare our savings journey with others’, it’s really, really important to remember everyone’s income, monthly outgoings and financial situations are totally different.

Having savings can be handy should you need money in an emergency; for example, if you need to cover the expenses relating to a broken-down car. Savings could also go towards something lovely, like a holiday.

A good way to start saving is to factor it in to your monthly outgoings. If you’re unsure, you could start off with a small sum and see how you get on. If you find that you can quite comfortably manage that, you might like to increase the amount.

On the other hand, if saving money means that you are falling short on essentials, such as food and bills, then you may want to reduce the amount you are putting away.

Scams

How can I protect myself from scams?

Unfortunately, scammers are evolving and coming up with more and more inventive ways to trick us and steal our information.

Some of our top tips for spotting scams include:

• Ignore calls from unknown or withheld numbers. If it’s genuine and it’s important, they will leave you a message.
• If you do not trust that an email or text message is genuine, do not respond to it.
• Block suspicious email addresses and phone numbers.
• Remember, most genuine companies will not reach out to you by WhatsApp.
• Never click on any links that you have been sent unless you are absolutely certain of the sender and the content.
• Scammers often try to disguise themselves behind legitimate company names. They may even set up a copy-cat website. Take a closer look at the website domain or email address. For example, a scammer claiming to be Royal Mail may appear to have the same website address, but a closer look might reveal that an ‘o’ has been subtly omitted for a ‘0’ to read r0yalmail.com.

For further information on scams, have a browse through our blog.

I think I have been the victim of a scam. What can I do?

If you have given out your bank details, contact your bank as soon as possible. They will be able to help you secure your account and be on alert for any unusual activity.

Any attempted scams can be reported to the Gov.uk website, who will pass the information on to the National Cyber Security Centre (NCSC). You can also contact Citizens Advice Bureau, who have a handy form that allows you to make a report online.

Help

I’m really struggling with my finances. Where can I go for help?

Firstly, please remember that you are not alone. Some days, money worries may be all you can think about, and this can be all-consuming. Don’t allow your situation to isolate you.

From food banks to free toiletries (including nappies and sanitary products), it’s important that you know that help is always available.

Asking for and accepting help is nothing to be ashamed of. In fact, it’s a brave step towards getting back on top of your finances and managing your money with confidence.

For free, impartial advice, you can visit Citizens Advice Bureau, MoneyHelper, National Debt Line and StepChange.